Tech
OpenAI big chip orders dwarf its revenues—for now
OpenAI is ordering hundreds of billions of dollars worth of chips in the artificial intelligence race, raising questions among investors about how the startup will finance these purchases.
In less than a month, the San Francisco startup behind ChatGPT has committed to acquiring a staggering 26 gigawatts of sophisticated data processors from Nvidia, AMD, and Broadcom—more than 10 million units that would consume power equivalent to 20 standard nuclear reactors.
“They will need hundreds of billions of dollars to live up to their obligations,” said Gil Luria, managing director at D.A. Davidson, a financial consulting firm.
The challenge is daunting: OpenAI doesn’t expect to be profitable until 2029 and is forecasting billions in losses this year, despite generating about $13 billion in revenue.
OpenAI declined to comment on its financing strategy.
However, in a CNBC interview, co-founder Greg Brockman acknowledged the difficulty of building sufficient computing infrastructure to handle the “avalanche of demand” for AI, noting that creative financing mechanisms will be necessary.
Creative financing
Nvidia, AMD, and Broadcom all declined to discuss specific deals with OpenAI.
Silicon Valley-based Nvidia has announced plans to invest up to $100 billion in OpenAI over several years to build the world’s largest AI infrastructure.
OpenAI would use those funds to buy chips from Nvidia in a game of “circular financing,” with Nvidia recouping its investment by taking a share in OpenAI, one of its biggest customers and the world’s hottest AI company.
AMD has taken a different approach, offering OpenAI options to acquire equity in AMD—a transaction considered unusual in financial circles and a sign that it is AMD that is seeking to seize some of OpenAI’s limelight with investors.
“It represents another unhealthy dynamic,” Luria said, suggesting the arrangement reveals AMD’s desperation to compete in a market dominated by Nvidia.
Crash or soar?
The stakes couldn’t be higher.
OpenAI co-founder and CEO Sam Altman “has the power to crash the global economy for a decade or take us all to the promised land,” Bernstein Research senior analyst Stacy Rasgon wrote in a note to investors this month.
“Right now, we don’t know which is in the cards.”
Even selling stakes in OpenAI at its current $500 billion valuation won’t cover the startup’s chip commitments, according to Luria, meaning the company will need to borrow money.
One possibility: using the chips themselves as collateral for loans.
Meanwhile, deep-pocketed competitors like Google and Meta can fund their AI efforts from massive profits generated by their online advertising businesses—a luxury OpenAI doesn’t have.
The unbridled spending has sparked concerns about a speculative bubble reminiscent of the late 1990s dot-com frenzy, which collapsed and wiped out massive investments.
However, some experts see key differences. “There is very real demand today for AI in a way that seems a little different than the boom in the 1990s,” said Josh Lerner, a Harvard Business School professor of investment banking.
CFRA analyst Angelo Zino pointed to OpenAI’s remarkable growth and more than 800 million ChatGPT users as evidence that a partnership approach to financing makes sense.
Still, Lerner acknowledges the uncertainty: “It’s a real dilemma. How does one balance this future potential with the speculative nature” of its investments today?
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Why Is Alexa+ So Bad?
I stuck Amazon’s Echo Show 15 and its Alexa+ AI assistant in my kitchen for a month. Things have not gone well.
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The War on Iran Puts Global Chip Supplies and AI Expansion at Risk
South Korean officials have warned that the US-Israel war with Iran could hit the global semiconductor supply chain if it disrupts the flow of critical industrial materials from the Middle East.
South Korea’s semiconductor sector, led by giants like Samsung Electronics and SK Hynix, produces about two-thirds of the world’s memory chips. If the Middle East’s supply of chipmaking materials is disrupted, semiconductor production could slow unless alternative sources are found quickly.
The Helium Problem
One material at risk is helium, which is essential in chip manufacturing for managing heat, detecting leaks, and maintaining stable temperatures in fabrication equipment. For many of these uses, there is no real substitute.
About 38 percent of the world’s helium is produced by Qatar, where large extraction facilities are tied to the natural gas industry. This concentration means that disruptions can quickly ripple through the global supply chain.
National oil company QatarEnergy declared force majeure on March 4, after stopping its gas production and downstream operations due to ongoing attacks. Downstream facilities turn gas into other products, including urea, polymers, methanol, and aluminum.
South Korea’s Industry Ministry said the country also depends on the Middle East for 14 other materials in chipmaking, such as bromine and some chip-inspection equipment. While some of these materials can be sourced domestically or from other markets, shifting suppliers in the semiconductor sector is difficult because chipmakers need to test and validate new sources to meet strict purity standards.
Companies say the situation is manageable for now. As reported by Reuters, SK Hynix said it has secured diverse supply chains and maintains sufficient helium inventories, adding that there is “almost no chance” its operations would be affected in the near term.
Contract chipmaker TSMC similarly said it does not currently anticipate a significant impact, while GlobalFoundries stated it is in direct contact with suppliers and has mitigation plans in place.
Stuck in Transit
Even if Qatar’s gas production restarts, the semiconductor industry is vulnerable to disruptions in regional shipping routes. Much of the world’s energy and petrochemical exports from the Persian Gulf pass through the Strait of Hormuz, a key maritime choke point.
If shipping through this corridor is interrupted for an extended period, it could slow the movement of industrial gases and petrochemicals that chipmakers rely on. Disruptions to oil and gas exports from the region have also already pushed global energy prices higher: Brent crude, the European benchmark, is priced at $80 per barrel at the time of publication.
Energy costs are a major factor in semiconductor production. Fabrication plants run large clean rooms that need constant electricity and cooling, so chipmakers are sensitive to changes in global energy prices. Industry representatives in South Korea warned that a prolonged conflict could push energy prices higher, likely leading to higher semiconductor production costs and potentially higher chip prices.
These risks come as semiconductor supply chains are already stretched by growing demand from AI computing. Chip demand from AI data center operators has tightened supply across several electronics sectors, including smartphones, laptops, and automobiles.
A Long-Term Problem
For now, the immediate impact on chip production is unclear. Major chipmakers usually maintain a mix of suppliers and stockpile specialty gases and chemicals to help weather short-term disruptions.
But if instability in the region continues, pressure on supply chains will likely grow. A drawn-out conflict that hits energy infrastructure, export facilities, or shipping routes could slowly squeeze the global supply of materials needed for chipmaking.
This could delay plans by major technology companies to expand artificial intelligence infrastructure in the Middle East. Firms such as Amazon, Microsoft, and Nvidia have been positioning the UAE as a hub for AI computing capacity.
This story originally appeared on WIRED Middle East.
Tech
Save up to $600 With These Mattress Firm Coupons and Deals
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Take 20% Off With Military, Medical, Student, or Teacher Discounts
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